In Africa’s fastest-growing economy, even the most successful companies are being tested by deep-pocketed competitors and surging demand.
Take Habesha Breweries, which introduced Habesha beer just two years ago and aspires to become Ethiopia’s leading brand. The company, based in this central Ethiopian city, has expanded three times and wants to expand further. But its plans have been curtailed by the country’s depreciating currency and competition from global brands such as Heineken and Castle.
“We are really trying to keep up with the big boys,” said Jort Crevels, Habesha’s finance director. “With IFC’s support, we have no reason not play in that league.” IFC is planning to provide a syndicated-loan facility of up to €70 million to support the company’s €131 million expansion. Habesha aims to increase production nearly eightfold to 4.5 million hectoliters—or nearly 119 million gallons of beer—within five years.
IFC is significantly expanding its investments in Ethiopia. Over the past five years, IFC has provided $452 million in new investment commitments across agribusiness, financial, manufacturing, and other sectors while delivering advisory services that support leasing and financial infrastructure and improve the investment climate.
“In Ethiopia, IFC’s work will help expand credit and trade and create markets, while mobilizing private financing that can become a more important factor toward diversifying the country’s economy,” said IFC CEO Philippe Le Houérou, who visited the country this week.
Rapid growth by companies such as Habesha and its competitors is expected to have a big impact on the country’s agricultural sector, from which most Ethiopians derive their livelihoods. Habesha’s projected beverage production would require 63,000 tons of barley a year. That supply would be sourced in part from 15,000 local farmers—up from 2,800 farmers today. IFC’s advisory services will help local barley farmers meet the high standards required of Habesha’s supply chain.
Local demand for beverages is increasing production in related industries. Juniper Glass Industries, for example, is setting up a factory close to Habesha’s. Juniper’s new facility, also expected to be supported by IFC, will produce up to 300 million bottles a year.
Local companies will face big challenges in the years ahead, however, if they can’t manage their risks. Foreign-exchange risks are a key concern. Juniper, for example, needs to import machines, equipment, and raw materials to support its expansion. But it’s a financial risk for the company to pay for these resources in foreign currencies when the local currency is depreciating.
“The only way to survive is to get rid of dollar addiction,” said Chris de Swardt, Juniper’s general manager.
IFC is finding new ways to address this concern. CEO Le Houérou signed an agreement this week with Ethiopia’s central bank to expand trade and local-currency financing—part of a broader effort by IFC to support Ethiopia by helping create new markets for private investors. Last week, IFC also entered a multi-year partnership with the central bank to strengthen Ethiopia’s nascent credit-reporting system. (IFC)